Bed Bath & Beyond Inc (BBBY) 2004 Q3 法說會逐字稿

Welcome to Bed Bath & Beyond's fiscal third quarter of 2004 results conference call. (OPERATOR INSTRUCTIONS).

This call is being recorded.

A rebroadcast of this conference will be available beginning at 6:30 PM Eastern time on Wednesday, December 15, 2004 through 6:30 PM Eastern time on Friday, December 17, 2004.

To access the rebroadcast you may dial 1-888-203-1112 with an access code of 808177.

Now at this time I would like to turn the conference over to Ron Curwin, Chief Financial Officer and Treasurer of Bed Bath & Beyond.

Mr. Curwin, please go ahead.

Thank you and good afternoon.

Welcome to Bed Bath & Beyond's fiscal third quarter of fiscal 2004 conference call.

Within the past hour we released our results for the 3 and 9 month period ended November 27, 2004, and announced the Company's first share repurchase program.

During this call we will review the Company's operating highlights and financial position, and provide guidance with respect to the balance of fiscal 2004.

We will also comment on our fiscal 2005 outlook.

Before proceeding, I will read the following statement and I quote, "Bed Bath & Beyond's fiscal third quarter press release and comments made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended.

Many of these forward-looking statements can be identified by the use of words such as may, will, expect, anticipate, estimate, assume, continue, project, plan and similar words and phrases.

The Company's actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be outside the Company's control.

Please refer to Bed Bath & Beyond SEC filings,, including its Form 10-K for the year ended February 28, 2004.

The Company does not undertake any obligation to update its forward-looking statements" end of quote.

Leonard Feinstein who co-founded our Company in 1971 with Warren Eisenberg and serves together with Warren as Co-Chairman of Bed Bath & Beyond leads off today's call.

Steven Temares, President and Chief Executive Officer and a member of the Board of Directors, will follow with an executive overview.

After Steven's comments I will update guidance with respect to the balance of fiscal 2004 and make our initial comments with respect to our fiscal 2005 outlook.

I'm now very pleased to introduce Leonard Feinstein.

Thanks, Ron.

I'm very pleased report that the strong operating results achieved during our fiscal first half were followed by another strong period in the fiscal third quarter, which ended on November 27, 2004.

In terms of consistent earnings growth, cash flow generation, and overall financial strength our record is virtually unparalleled in our industry.

Over the past 12 years, including the 3 stores we have opened since the end of our quarter, Bed Bath & Beyond store count has grown from 34 stores in 7 states to 643 stores in 44 states and Puerto Rico.

Net sales and net earnings have grown impressively.

The acquisitions of Christmas Tree Shops and Harmon discount health and beauty care stores, as well as major merchandising initiatives have added significantly to our Company's growth potential.

We opened 34 new Bed Bath & Beyond stores during the fiscal third quarter.

We were also pleased to open 2 Christmas Tree Shops and 1 Harmon store during the last month of the fiscal quarter.

With about 20 additional Bed Bath & Beyond stores expected to open during the final fiscal quarter of 2004 the number of new store openings for the full year are expected to be about the same as in fiscal 2003.

The square footage increase for fiscal 2004 however, will be about 10 percent more than last year's square footage increase, as we increased the size of our new stores.

As a group our new stores continue to exceed their sales productivity and earnings targets.

Although the number of new store openings this year is more heavily weighted than usual toward the end of the year, the long-term performance and returns from our new stores will obviously not be affected.

We continue to execute our store roll out program, and anticipate meeting our plan for 2004 store openings of approximately 85 stores.

The financial and operational goals for our new stores opened this year are being achieved.

We have been debt free since 1986.

Despite our aggressive store opening program, the cash acquisitions of Christmas Tree Shops and Harmon stores, and ongoing infrastructure enhancements, our cash and cash equivalents and investment securities totaled about $1.3 billion at quarter end.

Currently we are in the midst of the holiday selling season, which has historically been our most positive cash flow generation period of the year.

I'm very pleased to announce that this afternoon our Board of Directors authorized our first ever share repurchase program in the amount of $350 million.

This authorization reflects our Board's confidence in our future.

Steve will have more to say about this a little later on.

We believe home related products has been, and continues to be, one of the most attractive sectors in all of retailing.

And we're well positioned to take advantage of future opportunities.

Despite our substantial growth, our share of the estimated $100 billion home goods market remains relatively modest, affording us the opportunity to grow to well over 1,100 Bed Bath & Beyond stores in the United States.

Our recent acquisitions, superior customer service, expanded information technology capabilities, and new merchandising initiatives significantly add to our potential to create a much larger, more successful retailing business.

We are extremely well positioned for a continuation of our controlled growth, and our entire organization is dedicated to the attainment of our ambitious long-term goals.

We look forward to Bed Bath & Beyond's future with a great deal of confidence.

With the conclusion of this important holiday season and our fiscal year end rapidly approaching we continue to expect that fiscal 2004 will be our best year ever.

I will now turn the call over to Steven Temares.

Good afternoon everyone, and thank you for participating in this call.

Within the past hour we're pleased to have reported a strong fiscal third quarter and year-to-date performance, as well as the authorization for our first ever share repurchase program.

Our Board took this action based upon our Company's continued strong financial condition and reflects the Board's confidence in Bed Bath & Beyond's growth potential, financial outlook, and excess cash flow generation.

Our company, which has been debt free for over 8 years, had approximately $1.3 billion in cash, cash equivalents and investment securities as of November 27, 2004, which as Len said, is a point in time just prior to what has been historically our most positive cash flow period of the year.

In addition to providing value to shareholders through the $350 million share repurchase program, our strong operations should allow us to continue to invest in our infrastructure and maintain our flexibility to take advantage of opportunities as they may arise.

As announced in our press release, we expect to complete the share repurchase program within approximately 12 months.

During our last conference call in September we said that we appreciated the valuable insights provided by some of our shareholders regarding the possible uses of our growing cash resources, and we continue to do so.

In a quarter in which we witnessed an usual hurricane season and an aggressive promotional retail environment, we were pleased to announce that net earnings for our fiscal third quarter were $121.9 million, equivalent to 40 cents per share, compared with net earnings of $100.5 million, at 33 cents per share in the prior year.

This was an increase of approximately 21.3 percent.

For the nine months net earnings were approximately $324 million, equivalent to $1.06 per share compared with $255.2 million or 84 cents per share earned a year ago.

Net earnings for the nine months advanced by about 26.9 percent.

In achieving these earnings we once again give credit to our now over 30,000 dedicated associates who daily take the core principle of customer service and seize the opportunity and empowerment of our decentralized structure to make Bed Bath & Beyond a better Company.

Our financial results are a continuing testimony to the talents and efforts of our associates.

Consolidated net sales for the quarter were approximately $1,305,000,000, about 11.1 percent higher than those in the corresponding quarter a year ago.

Although later than desired, new store openings schedules impacted topline sales for the quarter.

For the first nine months consolidated net sales advanced to $3,680,000,000, approximately 15.7 percent higher than in the similar three quarters last year.

Consolidated comparable store sales grew by approximately 3.1 percent in the fiscal third quarter and 4.2 percent for the first fiscal nine months.

The increases in account sales include Christmas Tree Shops since the beginning of the fiscal third quarter.

Gross profit for the fiscal third quarter was approximately $548 million, or 42 percent of net sales, compared with $487 million, or 41.5 percent of net sales during the fiscal third quarter of 2003.

The 50 basis point improvement in the gross profit margin was driven primarily by the reduction of inventory acquisition costs and was consistent with plan.

Selling, general and administrative expenses for the fiscal third quarter were about $357.2 million, compared with approximately $325.5 million in the corresponding quarter a year ago.

As a percentage of net sales, we leveraged SG&A expenses by approximately 30 and 60 basis points during the quarter and the nine months respectively.

The third quarter improvement primarily resulted from leveraging payroll and payroll related expenses, occupancy costs, and store opening costs, partially offset by advertising expenses.

Although we continue to invest in and strengthen our infrastructure, we nonetheless strive to systematically reduce and eliminate costs throughout our operations.

This balanced strategy of reinvesting for the Company's future while achieving planned current operating results remains a high priority.

Operating profit margin in the fiscal third quarter, reflecting the positive movements in our gross profit, SG&A ratios improved by approximately 90 basis points over the third quarter of fiscal 2003.

For the nine months year-to-date the improvement was about 100 basis points.

We expect to continue to see operating margin improvements going forward.

As we have constantly said a generation of strong net earnings, combined with a solid balance sheet and positive operating cash flow, have always been our primary financial goals.

Our ability to attain and/or exceed our financial goals is dependent upon provided our customers with the best possible shopping experience.

Everyone in our growing, dynamic organization is dedicated to doing just that.

As most of you know, since our founding in 1971 we have grown our Company as a decentralized organization.

This is consistent with our belief in the dedication and talents of our associates.

Our success is all about our people.

A decentralized model leads to better decision-making and better execution, and provides us with a unique competitive advantage in the marketplace.

The efforts of our associates in focusing on how to best service our customers has enabled us to achieve a consistent long-term performance of which we could all be proud.

As I mentioned, this holiday season has produced a very aggressive promotional retail environment.

We have chosen to remain relatively restrained with our promotional activity during this period.

This is consistent with our philosophy of taking a long-term approach to our business and the optimization of our profitability over time.

We believe we remain extremely well positioned to take advantage of any opportunities that arise, and to respond to any challenges that may lie ahead.

We're pleased with our year-to-date operations.

Our balance sheet at November 27 remains strong.

And as discussed earlier in connection with our share repurchase program, operating cash flows remain strong.

Our financial strength has always been a key management focus.

And we see our balance sheet continuing to strengthen as we look to the future.

Len commented earlier about the expected completion of our fiscal 2004 new store opening plans.

While disappointed in the later than anticipated opening of many of our new stores, we continue to be very pleased with the performance of our new stores.

Currently we anticipate opening approximately 85 new Bed Bath & Beyond stores in fiscal 2005.

We're also proceeding with plans to open additional Christmas Tree Shops and Harmon stores in fiscal 2005.

By taking a long-term approach to building the Bed Bath & Beyond, Christmas Tree Shops and Harmon businesses, and by making essential investments in our infrastructure to ensure a solid foundation to support our growth objectives, we expect that all aspects of our business will contribute significantly to the achievement of our goals in the years ahead.

So to recap, net earnings in our fiscal third quarter rose approximately 21.3 percent to $121.9 million, or 40 cents per share, compared with $100.5 million, or 33 cents per share in the fiscal third quarter of 2003 on an approximately 11.1 percent increase in net sales and a 3.1 percent gain in same-store sales.

Over the past 12 years Bed Bath & Beyond store count has grown from 34 stores in 7 states to 643 stores in 44 states and Puerto Rico.

We completed 2 acquisitions and vastly improved our infrastructure.

Our organization has never been stronger.

We're dedicated to giving our Bed Bath & Beyond, Christmas tree and Harmon customers the very best shopping experience possible, and through these efforts to continuing to produce exceptional financial results.

As you'll hear from Ron, we remain comfortable with our ability to achieve all of our performance and growth targets for fiscal 2004 which end on February 26, 2005.

And we are expecting another productive year in fiscal 2005.

We will review our fiscal fourth quarter and full year results with you on our next conference call following the end of our fiscal year.

At the conclusion of this conference call, both Ron and Ken Frankel, our Director of Financial Planning, will be in their offices to take your comments and questions.

On behalf of all of us at Bed Bath & Beyond, Christmas Tree Shops and Harmon stores we wish you the very best for the holiday season, and a healthy, happy and prosperous New Year.

Thanks, Steve.

As Len and Steve said, we're pleased with our fiscal third quarter and year-to-date results, and remain comfortable that our financial goals for all of fiscal 2004, which ends on February 26, 2005, will be achieved.

In short, we foresee a continuation of our Company's exceptional fundamental performance.

After updating guidance for our fiscal fourth quarter and the planning assumptions which support it, we will as we do every time -- at every year at this time, provide our initial comments on the outlook for the ensuing year, in this case fiscal 2005.

We will also comment briefly on some additional fiscal third quarter financial highlights.

We're comfortable with analysts consensus earnings estimates of approximately 55 cents per share for our fiscal fourth quarter ending February 26, 2005.

And now believe that for all of fiscal 2004 earnings per share will approximate $1.61 per share.

Furthermore, we expect to end this fiscal year in our strongest ever financial condition.

Here are our major updated planning assumptions for the fiscal fourth quarter of 2004.

One, we expect to be operating approximately 660 Bed Bath & Beyond stores, 26 Christmas Tree Shops, and 36 Harmon stores occupying approximately 23 million square feet of store space at the end of fiscal 2004.

This would include approximately 85 new Bed Bath & Beyond stores, representing approximately 2.3 million square feet of store space added in fiscal 2004.

Of the remaining Bed Bath & Beyond stores expected to open in fiscal 2004, we anticipate that most will open during the last months of our fiscal year.

Two, our expansion will continue to be entirely funded from internally generated sources.

Three, based on current assumptions, including the timing of store openings for the balance of the fiscal year, consolidated net sales at fiscal fourth quarter are expected to grow in the 10 to 12 percentage range.

Consolidated comp sales, which are up against an 8.1 percent comp in last year's fiscal fourth quarter, are expected to grow in the 3 to 5 percent range.

Four, operating profit margin is expected to show some improvement over that reported for the fiscal fourth quarter of 2003.

Five, interest income is expected to increase due to a combination of higher average cash balances and interest rates.

Six, income taxes will continue to be provided at 37.75 percent of pretax earnings.

Seven, capital expenditures for all of fiscal 2004 are planned to be approximately $190 million, mostly for new Bed Bath & Beyond store openings and information technology enhancements.

Depreciation and amortization are estimated to be approximately $90 million for the year.

Turning now to next year fiscal 2005.

After the conclusion of the ongoing 2004 holiday shopping season we will finalize our fiscal 2005 operating plan.

At this time we believe that consensus earnings estimates of approximately $1.89 per share for all of fiscal year 2005, and approximately 32 cents per share for the fiscal first quarter of 2005 appear reasonable based on current planning assumptions and other known factors that might affect our results.

The principal assumptions which will underlie our fiscal 2005 operating plan are as follows.

One, approximately 85 new Bed Bath & Beyond stores and additional Christmas Tree Shops and Harmon stores will be opened.

The new Bed Bath & Beyond stores are anticipated to occupy approximately 2.4 million square feet of total store space.

Approximately one-third are expected to open in the fiscal first half of the year, and the balance in the fiscal second half.

Two, new Bed Bath & Beyond stores are expected to generate net sales of between 160 and $185 per square foot in their first 12 months of operations.

Consolidated net sales for the fiscal first quarter and for all fiscal 2005 are currently expected to increase by a low double-digit percentage, and comp sales to increase by about 3 to 5 percent.

Three, further improvement in net operating margin is expected.

Four, based on slightly higher investable balances, after taking into consideration our share repurchase program and higher interest rates we anticipate another increase in interest income for all of fiscal 2005.

Five, completion of our newly announced stock repurchase program during the fiscal year.

Six, our current guidance for the effective tax rate is 37.75 percent of pretax earnings.

However, we anticipate that when we finish our 2005 operating plan the effective tax rate might be reduced slightly.

Seven, our current guidance also does not take into account any expensing of stock options.

Consistent with prior practice, we will adjust our fiscal 2005 operating plan as may be required throughout the year.

And we will provide updated guidance on a quarterly basis.

Before concluding this afternoon's call there are a few additional comments relative to the just concluded fiscal third quarter.

One, our debt free balance sheet as of November 27, 2004 remains strong and flexible.

The combined total of $1.3 billion in cash, cash equivalents and investment securities compares with cash, cash equivalents and investment securities of about $838 million a year ago, an increase of about $462 million or 55.1 percent.

The Company is expected to continue to generate cash resources in excess of its current needs.

Two, merchandise inventory levels for the ongoing holiday season were planned to fully support our sales goals for the period.

Merchandise inventory at November 27, 2004 were on plan at approximately $1,214,000,000 compared with approximately $1,168,000,000 a year ago.

On a per square foot basis inventories at the end of the fiscal third quarter were about $54 -- 54.29 compared with $57.49 per square foot a year ago, a planned decrease of about 5.6 percent.

We continue to tailor inventories by store to best meet the demands of the customers of each store.

Three, shareholders equity at November 27, 2004 was approximately $2,367,000,000.

A year ago it was about $1,800,000,000.

Four, capital expenditures through November 27, 2004, primarily for new store openings and information technology enhancements, were approximately $112.2 million compared with $79.2 million for the first three fiscal quarters a year ago.

As previously stated, we now expect that CapEx for all of fiscal 2004 will be about $190 million.

Depreciation and amortization for the nine months came to approximately $70 million, up from $60.7 million last year, and should be about $90 million for all of fiscal 2004.

Five, company-wide total store space as of November 27, 2004 was approximately 22.4 million square feet.

With a small but expanding share of the retail marketplace for home goods, Bed Bath & Beyond is uniquely positioned to continue to deliver superior operating results, combined with outstanding financial strength and flexibility, for the foreseeable future.

We remain dedicated to providing the best possible shopping experience for our millions of valued customers, and by doing so over time to continue building shareholder value.

If you have any questions, Ken and I will be in our offices this evening, December 15, to take your calls.

As always, we very much appreciate your interest in Bed Bath & Beyond.

I would like now to join Warren, Len, Steve and all of the Bed Bath & Beyond associates from coast-to-coast in wishing you all a healthy, happy and prosperous holiday season and New Year.

We look forward to again updating you on our progress after the conclusion of our current fiscal year.

Ladies and gentlemen, this concludes today's conference call.

Thank you all for listening.

You may now disconnect.